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The Presidential Inbox: Latin America

Speakers: Shannon K. O'Neil, Council on Foreign Relations; Author, Two Nations Indivisible: Mexico, the United States, and the Road Ahead, and Arturo A. Valenzuela, Senior Adviser for Latin America, Covington & Burling LLP; Professor of Government and Foreign Service, Georgetown University; Former Assistant Secretary of State for Western Hemisphere Affairs, U.S. Department of State
Presider: Sergio J. Galvis, Partner, Sullivan & Cromwell LLP
May 31, 2013

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MODERATOR: Good afternoon everybody, welcome to the Council on foreign Relations Meeting with Shannon O'Neill and Arturo Valenzuela on "The Presidential Inbox, Latin America." I would also like to welcome the CFR members around the nation and the world actually participating in this meeting through the livestream and teleconference. And we'll get some questions when we get to questions and answers from the members. We'll get some as well from our participants online. And I guess we've got to be prepared for the fact that we're going to be on You Tube because this is being livestream – I think they covered that earlier, it's on the record and livestream.

We really do have an ideal panel today for this discussion of U.S. foreign policy considerations for an administration with respect to Latin America. Shannon O'Neill who many of you know, many of you actually know both Shannon and Arturo, is a senior fellow here at the Council for Latin American Studies. She's the author of "Two Nations Indivisible: Mexico, the United States and the Road Ahead." You've been on quite a book tour.

SHANNON O'NEILL: I have.

MOD: Very successfully.

F: So far, so good.

MOD: Congratulations. And the book analyzes the political, economic and social transformation that Mexico has undergone and is undergoing and why these changes matter to the United States. Shannon has testified before Congress on US policy toward Mexico and she's a frequent commentator on major television and radio programs and is widely published and I urge all of you if you have not done so yet to pick up her book and read it. It's very, very good and insightful.

Arturo Valenzuela is one of our most accom0lished and knowledgeable foreign policy practitioners with respect to Latin America. Currently he's having finished his most recent Summerville at, in government as Assistant Secretary for the Western Hemispheric Affairs, he's currently at the Covington and Burling law firm in Washington as well as returning to his teaching work as a professor of the government and foreign service at Georgetown. Prior to being Assistant Secretary, he had served on a number of positions in the Clinton administrating at National Security Council.

Our format today is pretty straightforward. We're going to, the three of us are going to engage in a little bit of a dialogue, Q & A back and forth, for about 20 minutes, 20, 25 minutes, where we'll cover I think a lot of the issues that are pertinent to the region, I hope. And then around 1:30 we will turn to our members here, as I said, as well as those who are online and get some questions to fill in any gaps that we haven't covered at the time. And we'll finish up at 2:00 on the dot, as planned. And I'll come back to you when we get to that area with a couple of requests about how to deal with the questions.

Prior to this session the three of us spent some time together talking about the topic of US policy toward Latin America and one of the things that we identified was that there is the dilemma that is a constant dilemma when we talk about Latin American f foreign policy and maybe that's the topic I want to start with – which is the dilemma of criticism from the right, from the right and maybe from the center that we don't pay enough attention to Latin America. And yet there's equal criticism the minute we pay too much attention. And I'd like to start out with that question of, how do we, if you're in the administration and you think of Latin America as a whole, do you approach, do you shape your foreign policy on a thematic basis or do you think about it sort of on a transactional basis, and by that I mean are you, is there an overriding, overarching theme or are there essentially a series of transactions, some quite positive and good, some challenging and difficult that you basically manage and address. And with that , Arturo maybe I'll start with you since you completed service in government most recently.

ARTURO VALENZUELA: Sure. Delighted to be here and to be on this panel and to have this opportunity to have this conversation. Look, when you do foreign policy in some ways you face 3 challenges – one is you are looking to see how you can broadly advance national interests with a very strong blueprint, an understanding of what fundamentally US interests are, how you go ahead in order to achieve the objective of advancing United States interests, and generally you want to have a fairly clear idea of what those elements are. BUT, there are two other things that come into the picture, and that is first, crisis management. You can't often predict what's going to happen, whether it's an earthquake in Haiti in the case of my situation or a coup in Honduras. These are elements that come up all the time and it's part of the international arena and you have to deal with these crises. But you can't just react to each crisis. You have to think about the crisis within the framework also of a fairly clear set of objectives. Otherwise you can handle the crisis or manage the crisis by making a serious mistake. I think, the case of Honduras for example, we were criticized very much because we said in effect a coup had taken place in Honduras and many people disagreed with that terminology. We thought it extremely important for US policy to make CLEAR that at this particular point in history, to return to the kinds of (patorian) political of the past was just simply not where we wanted to go. The third thing I wanted to mention is that foreign policy is also managing the day to day. Richard Neustadt in his famous book on presidential power actually has this phrase where he says: Presidential power, the presidency, remember, is essentially the power of a glorified clerk. Why? Because he has to go to a (MAPEC) meeting, he has to speak before the Congress, he has to travel to Iowa and he has to see a bunch of Girl Scouts every day, and so he's constantly being moved – well that happens at all levels of the bureaucracy. So somebody for example in my case handling the management of a bureau which is the second largest bureau in the State Department, Western Hemisphere Bureau, means a whole host of transactions that you have to do. You have to manage all three of those.

Now, to get specifically to the point, how do you then come up with a grand strategy, what is it – for that you need to understand what's really happening in the world, what changes are really taking place. And I submit, and I'll finish with this, that we really are, and I think we all understand this, light years away from where Latin America was 30 years ago, where we had only 3 countries avoiding authoritarianism. Questions, since this is a class right? What three countries? Costa Rica, Venezuela and Colombia are the only 3 countries that avoided authoritarianism during the 60s, 70s and 80s. And I count Mexico as an authoritarian regime (then). We also had the crisis of the 1980s, we had civil wars in Central America and so on and so forth. We were talking about this earlier. We're light years away from that. We've recently gone through this 2008 world financial crisis, and it used to be said that whenever the United States or Europe sneezed, Latin America would catch pneumonia. Now it (works) the other way around – the United Stated and Europe are caught pneumonia, and Latin American barely sneezed. In the interim you've seen a significant amount of change. Between 1930 and 1980 40% of all changes of government were through military coups. In the eighties that went down about 20%. Since then there have really been only two classic coups in my view and that was in Haiti and then later in Honduras, and this is why it was so important. Challenges still remain in the construction of democratic institutions and in this opening of the economies. We're no longer in the era of stagflation, of import substitution industrialization. We're in a completely new ear, in fact on that's changing very significantly. I'll end with this. I see today for example a Latin America that is not only strengthening democratic institutions. You have to understand that you can't generalize for the whole region. But nowadays, what's REALLY interesting and dynamic and exciting is what's happening in the Pacific as opposed to what's happening in the Atlantic.

MOD: And it becomes a world of contrast and maybe Shannon this is something that you can then comment some on. We've had a love affair with Brasil for the last 5 to 10 years and it think that will continue for a long time, there are so many extraordinary things about that country. But as a consequence in a way Mexico has been in the shadows. And the impression in Mexico has focused on the drug war, on security issues, immigration. But there's been much more going on and picking up on that theme that Arturo was putting on the table, there is a very dynamic economic story and also demographic story that contrasts quite sharply with things going on in other parts of the region.

SHANNON O'NEILL: It's interesting when you look, if you look back 18 months Brasil was the story, now Mexico has become the story in the last 6 months say and it's back and forth. And what's interesting there is in many ways they share similar challenges. These are both countries that have gotten past the big macro-economic reforms, so they both have financial stability, they both have lowered inflation, they both have their macro-economic house in order and all of that. But both in different ways need to move to the micro-reforms and some of those are different. Brasil has a very big state, it has a very complicated tax structure, it has some of these challenges. Mexico has lesser of one, but Mexico has problems with, they have problems with monopolies and (oligopies/oligarchies), economic concentration, things that Brasil doesn't. So there's these issues there. Both countries have real challenges with infrastructure so they both have quite weak infrastructure and that holds them back and you see this in the World Bank or World Economic Forum, the way they rank competitiveness or doing business – this is something that holds both these countries back dramatically.

MOD: And actually it's something that holds back virtually EVERY country in...

SHANNON: Almost every country. Some of these are actually quite broadly held. The other ting all these countries, ALL of them I would say, have very weak education systems and so as you think about the future, I mean, Latin America as we were talking about, this is not 21st century Latin America is very different than 20th century. You even brought up the political side which is very different. The other thing that's quite different is these economies are now very open. Of course there's varying degrees, but they're very open to the world and many of them in good ways. Other ways they deal with the volatility of commodities and (the) like, but that is something fundamentally different. And the other big change we've seen in is society. And so there we see now democracy – so there's voters, these are now citizens who are voting – but we've seen with the economic changes, the rise of a middle class to a greater or lesser extent across almost all these nations. Not everyone but most of them and that's something that both say Mexico and Brasil has, but so does Peru, so does Chile, so do other countries in the region. And so as we the United States think about foreign policy and how we address the region, it's, we also have to wrap our heads around that the region itself is changing. It's not static. So how do we engage the new middle class. How do we engage these new democratic governments and where they are. How do we engage the real concerns that they have because those are politicians that we're working with, but that are answering to polls in their OWN country. And so THAT'S something you see between Mexico and Brasil, you see them caring about economic opportunities, and you see them caring about security. So those are the two issues that are driving politicians and when we interact with them, we need to be cognizant, as much as THEY need to be cognizant of what our limits are and we see that in immigration debates or gun control debates and the like. We also need to be cognizant of THEIR limits because they are also wanting to be reelected or their party wants to be reelected.

MOD: So both of you have referred to this. We've got different parts of Latin America and how they interact with each other. So we've got let's say a series of US/Brazilian relations, or US/Mexican relations, both at the public sector and private sector, that almost have very little to do with each other, right? They're almost completely different work streams if you will. You've got Colombia, Chile, Peru, Mexico who are very comfortable with each other at the economic level and maybe even beyond the economic level. Then you've got the challenges of Argentina, Brasil, [inaudible] 21:44, and then the wild card and difficulties around Venezuela and how the Venezuelan picture plays out. So when you look at it from the perspective of what is the US government approach to these various countries, one thing that comes to mind is that in fact a lot of traditional foreign policy with respect to the region has been privatized. Right? A lot of it no longer is, Washington is no longer (particularly) relevant to it. Economic trade, enterprise becomes more relevant. But another piece of it is how do we encourage without tainting some of the trends that are so positive to free trade, open investment, free movement of capital and the like and at the same time how do we demonstrate a discipline in letting domestic politics play out in ways that may be not particularly attractive to us in different countries.

ARTURO: Look, there's simply no question that on the agenda of any president dealing with Latin America, a country like Brasil and Mexico is going to loom large, Mexico in particular because of its proximity to the United States of course the fact that with the North American Free Trade Agreement you also have an extraordinary process of integration that's taking place in North America. Many would argue, including myself, that the recovery of the automobile industry is partly due to the fact that we're talking about a very different sort of economic reality in North America since the signing of NAFTA before. At the same time, Brasil is the 7th or maybe it's going to be the 5th largest economy in the world. It's a power - the United States needs to have good strong relationships with Brasil. It has interests with Brasil that it needs to pursue and it needs to work with them. And so you have to have in both cases on the foreign policy agenda you have to have a robust response to the kind of ways in which you interact with both of those countries. However, having said that, one should also not fall into a simplistic view that somehow we have fish to fry elsewhere in the world and if we have fish to fry elsewhere in the world let's, why don't we just let the Brazilians handle the situation in the region. Well, talk to Paraguayans or Uruguayans and some others nowadays, or maybe even some folks on the Pacific side, and they'll say, hey, maybe we're not that INTERESTED in your sort of turning this whole thing over to the Brazilians. In fact, a lot of the, what's interesting is a lot of the conversation that you have, as I did as Assistant Secretary with all the trips I made and all the presidents and foreign ministers, repeatedly you had people say, we want the United States to continue to be engaged, there's a certain degree of balance that the United States can provide. Of course, that requires of course the United States have a smart policy towards these. In some ways there has to be a two track – good relationship with Brasil, build ties with Brasil. There are many interests as I say we need to pursue with Brasil. But that doesn't' mean that you just outsource the rest of the policy towards Latin America in that direction.

MOD: ... but I'm not sure anybody is proposing that, right?

ARTURO: But there are some commentators maybe and folks like that who would have argued, look, let's rely on the Brazilians to do these sorts of things. Maybe that was a view that was stronger in an earlier era than it is today. But I think that roughly – another point that you made though is EXTREMELY important. And that is that, and this is one of the reasons why I sometimes get irritated when people say, well the United States is not engaged in... wait a minute, what are we talking about when we talk about the United States. We shouldn't be talking just about the government. Or about US foreign policy. We should be talking about the extraordinary interactions between the United States and Latin America, across the board. And that includes of course the private sector as well. And form where I sit right now I see a private sector not only in the United States interested again in Latin America, but the private sector elsewhere in the world. We've talked about China, but the Indians are interested in Latin America and so on and so forth. AND Latin Americans are also expanding. You have the whole phenomenon of the multi-Latinas, Mexican companies that are expanding abroad into Asia, to Africa and so on and so forth. So this is a real change. The KEY on this sort of thing is not whether or not the kind of traditional foreign policy objectives that you're trying to pursue but how do you pursue BROAD policy. Not just the traditional foreign policy. I'm talking about economic policy, trade policy and other sorts of policies in order to be able to ENHANCE the capacity that we all have to make sure that the globalization that we're looking to is successful. And I think that's where a lot of interesting stuff is happening in Latin America. In some ways, the irony is Mercasur is presumably a well elaborated, integration system, much more so officially than say the Alliance for the Pacific and yet you see more integration taking place now in the Alliance of the Pacific because the RULES that they're using are rules that are based on a model that's much more of an open, free trade type model than the ones that are taking place on the other side.

MOD: An example of that is the effort by the various stock exchanges in Mexico and Colombia and Peru to integrate. The but Shannon, picking up on that, when you think about the internationalization of the relationship among the Latin American countries, what does that mean for Mexico in particular. And the context in which I ask the question is I was in Mexico City recently and I found it curious to talk to a few folks who said, for us the single biggest emerging market is the United States and the fastest growing market is the Hispanic market in the United States and that's our, for the Brazilians, that's OUR emerging market.

SHANNON: It's interesting you brought up Mercasur, but NAFTA and Mercasur were basically formed at almost the same time and both with quite ambitious objectives. If you look at the last 20 years in both places, and North American HAS integrated, so you look at the way things are made and the production back and forth and the supply chains, while the Mercasur countries really haven't. The high point they reached in terms of intra-Mercasur trade was in the late nineties and since then it's declined, specifically over the last several years or last few years, we've seen many of the commitments made under Mercasur exceptions brought in or people breaking particular promises, or tariffs going back up and the like and so that objective or that concept seems to have reached, at least for the time being, really its last legs, and questions about whether Mercasur will really stay together. And what you have on the OTHER side and where Mexico fits into this is, as we were talking about, the Pacific Alliance and really what would come together under TPP, the Transportation-Pacific Partnership. So the NAFTA countries, Canada, the US and Mexico and then keep going down including Peru and Chile and perhaps Colombia we brought in. It's in the Pacific Alliance, it's not yet in TPP but it could be. And then along with a bunch of Asian countries excluding China. And for Mexico as it tries to position itself, I mean, it has linked itself to the United States and whether that's because of the movement of people – there's 11 million Mexicans living here, 35 million plus Mexican Americans...

MOD: .... and if I could interrupt for a second... is your sense from your research, because anecdotally it's MY sense from my visits there, that there's a much, MUCH higher level of comfort in Mexico with that decision than perhaps we would have seen 20 years ago.

SHANNON: There definitely is. You look at the polls and how Mexicans FEEL about the United States, just generally, and they feel much more warmly to the United States than almost any other place, and this divides a little bit between the general population likes us more than some of the elites like us. But overall it's a very good relationship and particularly Mexicans who have more contact with the United States, so those are the north of Mexico or those who say in the surveys that they have a relative living in the United States, they like the United States more. So the more they GET to know us the more they like us. But what you've really seen over the last two presidencies I would argue and already the beginning of this presidency under Pena Nieto who's in just 6 months, this recognition of Mexico's future is tied to the United States and so how to deepen the links that are already there and so one way is through TPP, this Transportation-Pacific Partnership which links it to Latin American countries. Another is them trying to or wanting to get into the negotiations the United States is beginning with the Europe. But seeing their future as permanently linked and that is VERY different than as you divided off the Atlantic side. And I think the challenge for US policy is to support and encourage and join in this coalition of the willing, of sort of the economically open and those that want to be part of TPP, but don't close the door to those that right now aren't there, and so, if they want to join.

ARTURO: On this particular point, one of the interesting debates now is, you talk to your Mexican colleagues and they'll say wait a minute, the US is now doing a free trade agreement with Europe? Hmm. Maybe they didn't' consult quite enough with us as they should have. And there's a little bit of hard feeling right there on that regard. And perhaps one understands why that's the case. But the larger point is a critical one and that is that at some point in the United States dealing with the Europeans on all these sorts of issues, they're going to HAVE to take into account of course what the Canadians and the Mexicans also think, because of Shannon pointed out the value of change. You just can't miss it if you go to a place like (Carretero?) and visit the (Bombadera?) plant. I tell this story frequently because I was taken there by the CEO of (Bombaedera) and this is a classic example of a world company with its supply chains and value change across the plates. We're no longer living in a situation where sovereign states really sort of negotiate on the basis of their particular kinds of interest without thinking about the broader implications of what they will face. And let me just conclude by this. The same thing – I mentioned there Free Trade Agreement with Europe, as the US looks at the Transpacific Partnership, TPP, the Latin Americans are not quite IN that yet. Smart US policy is one that looks at TPP and dos not forget the importance of the Latin American component on the Pacific. Mexico, Colombia, Peru, Chile and potentially others as well. I was just the other day talking to some Paraguayans and they would like to join the Alliance for the Pacific at this particular point because they're seeing this whole thing. Smart US policy is one that will enhance THOSE sorts of relationships which are in OUR interests in the US as well as in theirs.

MOD: One last question and then we'll turn to the members, and that is the intersection of US domestic and foreign policy. Another factor that came up during my visits in Mexico was the comparative advantage that Mexico would gain from integration of US energy markets, of North American energy markets, their ability to compete effectively with china essentially, turning on having access to a very efficient distribution system for natural gas in North America. The immigration debate that we're going through in our country right, and how it's perceived in Latin American. What are the, energy, immigration, what are the two or three or four items that the two of you see on our DOMESTIC agenda that have a direct effect if you will on our relations with the various countries in the region.

ARTURO: Obviously we've talked a lot about the trade dimensions and I think one of the positive thinks about the recent visit of the President to Mexico was reinforcing what the Mexicans really DID want to hear, that this is NOT just about drugs and [inaudible] security and those sorts of – they're very important by the way. None of us would want to think that these aren't important priorities. But the relationship is much broader than that. It goes much further than that. And consequently what we really need to work on is an attempt to build a relationship across the border.

SHANNON: Two that you bring up. One is energy, because as we've seen and we will be seeing this is a real transformation in this hemisphere. The amount of energy that's been discovered in this hemisphere, the United States included, over the last 10 years is phenomenal, and so how that fits into geo-strategic, geo-political worldwide, global discussions is still evolving. And so I think that is a big issues. But how we think about it here is important for ALL the countries. It's particularly important for Mexico because 1) as we all know they need to reform their system, or they're THINKING about reforming their system this year, but they are also actually facing increasingly their own shortages of gas, and as they have transitioned from a commodity and agriculturally based economy to one that's dominated by manufactured goods, I mean this is their future lifeline. If they want to be a manufacturing powerhouse they have to have gas and even if they would open up the energy sector tomorrow, which is not going to happen tomorrow, the gas that's in the United States that we found here, the possibility that that could actually become a more seamless back and forth is very important to them. The other one is immigration obviously. It's important for a lot of these countries but particularly Mexico and Central America it's crucial. It's crucial for the people and the families that are in both places but it's also important for all the other issues that we care about in the bilateral or in the regional agendas. If you take out some of what has become often quite heated rhetoric around immigration, if you find a way to resolve that, and push it out of the debates, I think that will make it much easier for us to have, hard and easy, but hard conversations on other topics. And then the asst think I'll throw in, and I don't' disagree with you, but I actually think the domestic politics of drugs and drug control, and particularly the state by state legalization of medical and/or just marijuana generally has a chance, or sort of an opportunity to think more broadly about the way we think about drugs overall. Because the, what the United States has been propagating – and propagating is not the right word, what the United States has been pushing for many, many years with our OWN domestic politics changing at the state level may open up an opportunity to have bigger discussions about how we go forward with our international partners and think about say the recent OAS report that came out about different scenarios for international drug control regimes. So I think OUR domestic politics on that side could change some of the way we talk about it with our partners in Latin America.

ARTURO: One other thing about immigration if I might. It's really astonishing to me that we can have a debate as we should and we are having on immigration, where the issue of the relationship between a policy question, which is a domestic policy question in the United States is not linked in practically ANY of the discourse to our foreign policy and our national security interests. It's pretty astonishing. We don't talk about, why should we do immigration reform with regard to our fundamental national interests. When you think about it, you could make a strong case that through action and inaction, or whatever the complex dysfunctional immigration has been in the United States, it has provided a buffer for a country as important as Mexico to be able to in some ways have a safety valve – the Mexicans will MAKE this argument in fact – that has allowed Mexico to go through one of the great transitions of the modern world, one of the great and most difficult and complex transitions in there modern world, without having a situation close to the United States borders that affect our national security interests. Sure, it's a domestic issue. But it does have national security implications that are really significant.

MOD: Alright, with that let me turn to the members in our audience and we'll take some questions. If you could please identify yourself, your affiliation and I know you were going to do this so, this is for the others, and make your questions on point and succinct.

QUESTION: I will do all of those things. Jason Bordoff with Columbia University. I wanted to follow-up on the energy point you asked about at the end, you talked about as a Western Hemisphere transformation. All the medium term outlooks show it's almost entirely a North American transformation except Brasil, but the Brasil outlook seems to be more bleak rather than more optimistic recently. Can you talk about what's you think the key energy countries, Brasil, Mexico, Argentina, Venezuela, need to do to change that? How likely it is that they WILL do that and over what's time frame might that happen? Either of you.

SHANNON: I'll start and then pass off. In Mexico obviously one of the potential players, both the oil that they have, the shale gas that they have that continues through Texas and others, unconventional, deep water, the Gulf, all these things that are there, I mean they need to change their constitution and have a big energy reform. This government has said that it's on the agenda, it's the next one coming up after they do the financial reform which is in front of congress right now. They would like to do it this year but anybody that follows Mexico knows that energy reforms are one of the most difficult political reforms out there, so whether they'll be able to do it is the big question =. And for me I would have said a week ago I would have been a little bit more positive about the chances of energy reform, because I'm not worried about the PRI coming together. It's going to be difficult but I think this government may be able to bring the PRI together. What worries me is the PAN, the opposition party, the last incumbent party, has fallen apart in the last week and there is no defined leadership and there's fragmentation and fractionalization. So for constitutional reform they need at least one other party and the most obvious and ideologically coherent with BIG energy reform is the PAN and so can the PAN actually bring together enough of a cohesive group to help the PRI pass a reform and I think THAT would be the big question. So Mexico, they need to reform. In Brasil, perhaps reform is not that big of a deal, but how do you actually make it attractive for lots of private companies to come in and really how do you help Petrobas which has been stretched to capacity, with so many different projects that THEY have become part of – and so how you perhaps reform again, the regulatory structure for the (PRI [inaudible]?), for some of the shale gas, for the other things that are out there too, really encourage private sector money and expertise and capacity and equipment to come in because it's been much slower because of the need for Petrobas to be involved in almost everything. So I think that's the change there. If you WANT to speed it up. I mean, there are some in Brasil who say we DON'T want to speed it up because we want to avoid the resource curse, we want it to be a slower process than perhaps international markets want because we're thinking about this for the long term rather than just the next 10 years. And coming on slower may be better in that sense. But that would – and then in Venezuela and Argentina, can you create a political system that can make a credible commitment to oil companies, energy companies that have a longer time frame so that they feel that their investment, the risk/reward ratio looks more positive than not. And I think that's a big challenge in both countries for the reasons of anybody who follows those they know.

ARTURO: What I would add to that is there's just no question that the geo-politics of oil will dramatically change with greater levels of self-sufficiency in the United States. If Keystone can be built and you can tap into the oil sands and so on, this just changes a lot of the dynamic itself. Given the refining of the heavy crude from Canada, it may displace at some point dwindling Venezuelan crude, who knows. So now where you, there are other countries with energy, I mean, Peru for example and Bolivia come to mind. And we haven't mentioned them, and this is where you improve, you have a very, very strong effort to try to tap into the gas. In Bolivia it's still blocked. And countries like Chile face a really, really significant problem because they really are energy poor at this particular point with hydro not being able to do – and this just leads me to the question that, to the comment that RENEWABLES obviously have to be on the table.

MOD: Energy is actually a very interesting way to look at Latin America and the evolution of various countries. When you think about the Chileans, particularly in northern Chile with the mining sector, essentially they built a gas pipeline that was going to be supplied by Argentine gas. There's plenty of gas in Argentina. The Argentines chopped off that supply, created an enormous problem for Peru. The Colombians have now a coal sector that is thinking about how they can be part of the solution to the northern Chile power supply shortage. So it may actually – you know, policy choices that individual countries will make on the energy sector may actually reshape relationships in a fairly dramatic way – not just in the obvious way of North American energy independence, if we achieve that. Yes please?

QUESTION: Bill (Lours?), Columbia University. You talked about the good issues, both of you and the big issues and the issues that really affect us. But you didn't mention those holes in that hemisphere, never mind Haiti and Cuba, Venezuela which as you imagine I'm a little interested in, dysfunctional Argentina, Bolivia, Central America – there are a lot of problems. They're not OUR problems. Whose problems are they and in the case of Venezuela, how, we can't help them out of this problem. They HAVE to get out of this problem. Who will do it? Brasil doesn't want them, Brasil doesn't want a strong Venezuela. It seems to me this is something that needs to be addressed by you who know so much. Let us know what you think.

ARTURO: If I might take a first crack at that. Look, if we sound optimistic about the region it doesn't mean that we're necessarily Pollyanna-ish about what's going on. I remind my students at Georgetown that it wasn't' until after WWII that some of the main countries in Europe and so forth were able to get democratic institutions working and getting their economies back and so on. These processes take a long time. And there are certain clear deficits in much of Latin America, although there's a strong [inaudible] (dependency). Those countries that had stronger democratic institutions earlier are doing better now than those that had very weak ones. But there are some countries that have EXTREMELY shallow experience with democratic institutions and there really IS a significant deficit there in terms of being able to strengthen institutions. I think if I were to point to one thing, and maybe this is my bias as a political scientist, until INSTITUTIONS are strengthened across the board, until you get rule of law across the board you're still going to have a lot of challenges in the countries you're talking about. So we don't want to minimize that at all. There IS a role for the United States to play, it's not necessarily the kind of role they may have played in the past, but the efforts that are still being made to help strengthen institutions, the whole Merida imitative for example – with regard to Mexico I think there was a role the United States played there in trying to push towards putting much more of an emphasis on local judicial reform kinds of issues – those kinds of things are important elements of this particular picture. I don't think that you're necessarily going to solve it in a very short period of time. But there's another part of your question that's important. Ultimately these are issues for these countries to resolve. When things go wrong – I had somebody come up to me from a nameless country recently saying how come you didn't prevent this from happening in my country, and obviously it's bad for your interests and so on. Maybe in another era where we were thinking just strictly in terms of the East/West conflict....

(SAME QUESTIONER): ... I'm (not saying solve the problem?). Whose problem is it?

ARTURO: Ultimately it's the country's problems. They have to – and in fact the more there is this kind of external intervention or trying to fix things, the more you make it difficult for the institutions themselves to gel within those countries. You have to learn by, like we all have, and are still doing – I mean, there is no teleological endpoint where everybody gets to nirvana in terms of institutional maturity. We all are struggling constantly with institutions and this is the role for these (people). There's also a huge deficit in terms of infrastructure, there's a huge deficit in terms of, Shannon spoke about it, education. Competitiveness is the problem for Latin America and they're still really, really short on this and unless they can get some of the competitiveness right, it's not just about state institutions, it's also about infrastructure and it's about human capital, all of those things that have to be.... Now, let me just need with one other thing and that is the Latin Americans want to try and resolve some of these themselves, whether it's through Unasur or through Mercasur – well it's not a problem, it shouldn't be a problem for the United States if the Latin Americans want to try to resolve their problems. Now they haven't been maybe as successful as they should have in resolving those sorts of problems. But you know, the era of well the United States has to be involved in every sort of group in Latin America should be ENDING. We should say, hallelujah, muchas gracias, why don't you work on trying to work out these things on your own. That is a POSITIVE tendency. And we still need to talk about China.

MOD: Let me pick up on the positive tendency, because there's another said to it. And I used at the start of my introductory comments I used the word "transactional approach" to the region. Certain of those problems clearly lend themselves for essentially a light touch or a smart touch on our part. There are others however where our direct involvement has in fact turned out to be quite positive, and Shannon, you'll remember when you first joined the Council actually was right around that time that there was an independence task force on Plan Colombia and it's hard to think – and that was by the way a policy that went across the Clinton-Bush administrations and largely wrapped up ...

ARTURO: ... I was at the NFC when we started.

MOD: Right. And an enormously successful example of very, very direct US involvement with the particular problems of a country. So it IS possible, right? It's just a question of figuring out where we pick our spots and where it's smart for us to have that direct involvement.

SHANNON: I would agree with that and I think – but often that is when the countries are welcoming you in.

MOD: That's a critical factor.

SHANNON: And some of the issues, some of the hot spots we just talked about, Venezuela, or perhaps Argentina, that there's not, I don't' see a very easy role, especially a heavy handed – not heavy handed role, but one that's quite active in those places. And, Bill, I would say this though. Brasil may not want a strong Venezuela but they definitely want a stable Venezuela.

(SAME QUESTIONER/BILL): That's not true.

SHANNON: I think they do want a stable Venezuela. And so I think the challenge for them is what would they do to have a stable Venezuela, and I think – the jury is out on what you would do but I do think you could turn to the Brazilian Foreign Ministry and other places, they're thinking hard about what could, would, should perhaps they do.

MOD: I have a few people in sight. You're in front – please.

QUESTION: Thank. Jeff (Laurenti) with The Century Foundation. Following up on Bill's question and this rich discussion, I half century ago we had the last US military intervention in Latin America. We think those are things of the past. Quarter century ago the wave of democratization that seemed to make military regimes within the region a thing of the past – both political parties in the United States celebrate democratization, and if countries as Arturo said make choices let's say in economic policy that those like Venezuela have made, they will be paying a price and we see already some move towards self correction in Maduro's very narrow win to continue Chavismo, and yet in Washington there remains a noisy (claque) that says, seems to say that those who choose these economic leftist ideas, maybe we need to be rid of them and 10 years ago you had Aristide bundled off. The effort to....

MOD: Your question?

JEFF (LAURENTI): The question comes, this is now kind of analyzing AMERICAN'S attitudes in Washington. What are the sources of the sentiment for continued, maybe soto voce, intervention, trying to overthrow democratic governments or at least tolerating it, that you dealt with on (Solia) within YOUR time, in Honduras, you see in Paraguay and elsewhere – what are the impulses as a constituency pressure? Is that a hangover from the Cold War that....

MOD: OK...

JEFF: ... allow Washington to continue to think of intervention.

ARTURO: Well look, the – absolutely, the era where the United States would even THINK about moving to get involved within the constitutional process of another country because they don't particularly like the possible results of an election or something like that – that's gotta be OVER, and to even equivocate on something like that is extremely injurious to fundamental national interests. Our fundamental national interests has ENCOURAGED those kinds of processes and not to undermine them. That doesn't' mean that there aren't some significant challenges moving forward. But, now look, I myself despair a little bit with the penchant that still exists that – the I guess nostalgia for (manaquias) as I put it, nostalgia for a world divided between black and white, or red and blue or whatever you want to do, call it. We're not there anymore and even if you look at the so-called leftist governments in Latin America, they all have different roots of their experiences. They may agree in beating up the United States and we may not like that and we SHOULDN'T like that and we should find smart ways to push back on that but to not understand that these phenomena also have specific roots that they have to (there) and that our response may not just simply be one of pushing back on that kind of things as we did in the past. The Cold War is OVER, and unless we're smart about where we go in the direction that we've been talking about on this panel and that is a whole new process of globalization that's leading us in different directions of this, then we're going to tend to fall into some of the same traps that we may have fallen into in the past.

MOD: But surely that's not to suggest, or maybe it's a question for the two of you, that there is an argument for the United States not having clarity of expression in terms of policy mixes, values, approaches...

ARTURO: .. absolutely not.. there ought to be...

MOD: : .. .that it represents...

ARTURO: .. real clarity..

MOD: ... (in favor).

ARTURO: Exactly.

MOD: In other words I don't take your comment to be a relativist everything goes, everything is ok.

ARTURO: Absolutely not because remember what are our fundamental principles. We have to stick by our fundamental principles and we want to encourage our fundamental ... the issue is how you do that and the issue is whether you do it maybe the way we did things in the past or whether what you might call smart power or something like that where you try to get these objectives advanced through OTHER sorts of arrangements, including other countries to move in that direction. And there is the possibility of doing this. If you start out from the point, look, we'll only deal with our friends and we won't necessarily -- it divides up the world in a way that is just simple not necessarily logical anymore.

MOD: Yes, in the back?

QUESTION: My name is Contest Barbon from The New York Times. I'd like to ask this to Mr. Arturo Valenzuela. How can the US expand its bilateral relations with Brasil, particularly with possible signing of expanded or (tax) treaty and also to convince Brasil, which is a rising regional power to use its clout over Iran to convince it to abandon nuclear weapons.

MOD: And if I could supplement that question, there was, many of you may have read the task force report of the Council on Foreign Relations said last year on US/Brasil relations and in it there was a very interesting and heated debate if you read it closely that included a dissent on the question of whether there United States should be supporting a permanent seat in the Security Council for Brasil. Do either of you – supplementing that question, do either of you have a view on that particular point?

ARTURO: Look, with regard to your first point, I think that we ought to try to ADVANCE our dialogue with Brasil on economic matters. In fact that's part of the agenda. When the President went to Brasil this was one of the baskets of the agenda. Bilateral Investment Treaty is a way to go. It seems unlikely at this particular point that you're going to be able to get a free trade agreement with Brasil in place, for the reasons that we understand. And in fact maybe we're moving FURTHER away from that than we might have before. The administration was very clear with Brasil when the previous administration in Brasil was attempting to help with regard to the Iranians on – and I think that it became clear – and the Security Council's resolutions are evidence of it – that in fact the diagnosis that the Brazilians had about the willingness of the Iranians to try to move in the direction of trying to resolve the issues with the United States were just simply wrong. And the United States, and the majority of the Security Council went in the right direction in that. And then finally the last....

MOD: On the question of the seat?

ARTURO: Oh, on the question of the seat. Look, this is one of the, this is an aspiration for the Brazilians that is right and UN Security Council reform is something the United States backs. It's a broader larger conversation. And let me just remind you of one thing that if you add up Colombia, Mexico, Peru and Chile, their collective GDP, that is in purchasing power parity, is equivalent or larger than that of Brasil. And the Mexicans will tell you, why shouldn't there be a UN seat for the Latin Americans. It would be a permanent seat but it would change – why should it have to Brasil. So that debate is still out there. The Brazilians would like to have a seat. I'm sure the Mexicans would prefer if in fact the Latin Americans had a seat and not just the Brazilians.

MOD: Shannon, anything to add on this?

SHANNON: I'll leave it at that.

MOD: OK, I think we have time for one more question. Yes?

QUESTION: Hi, good afternoon, (Binta?) Brown, Kirkland and Ellis. There's no question that we SHOULD be looking for ways of cooperating and partnering with Latin America. My question really is HOW do we do that. So if we could move as we finish the conversation to that direction I think it'd be really helpful.

MOD: Ok, we'll come back to that. Let me see if there's any other questions. I think there was a hand in the back. We'll take that one and then we'll wrap up.

QUESTION: Hi, Adele (Golfpo), Pfizer. My question is with regard to, I'd love your perspectives on the economic empowerment of women in Latin America. We've seen phenomenal correlation with increases in GDP as women come into the workforce. So curious, the initiatives that are ongoing are they sufficient? Do you think WE could be doing more? Do you think THEY should be doing more? I was interested in hearing, leave it up to them but access (to) the global markets as a challenge especially for women entrepreneurs. So anything on that topic love to get your perspective.

MOD: Good, why don't' we wrap up with those two question. Shannon.

SHANNON: I'll start with the women [inaudible]. One of the interesting things when you see this growth of a middle class over the last 15 or 20 years, a lot of it has had to do with the role of women. So it's urbanization that has helped, diversification of the labor market so move away from public employment to a much more diversified private sector employment that's allowed more people to come up. But a lot of it is women coming into the workforce and you've seen that happen, as it has in many countries but particularly in Latin American countries over the last 15, 20 years, a HUGE explosion of women coming into the workforce, women's education levels improving and all these things that lead to a virtuous circle in many ways and then the growth of this middle class so I think it IS, it's incredibly important. Some countries have been embracing this, other countries have not, have been perhaps ignoring it or in some places it's been quite difficult for women to break through the proverbial glass ceilings and the like. I know the State Department has done, especially under Secretary Clinton there was a lot of this included in the global perspective of the State Department and so there is a role there. But some of these things I think do go back to what Arturo was saying is that each country you have to incorporate as you go. And then just Binta, I think your question, how do we engage these countries. Some of these issues we've talked about. Whether it's economic integration or opening up and going back and forth. Whether it is working with them on things like energy. I think some of these positive initiatives we've talked about, or issues for the reason are the way to get...

(BINTA/ADELE?): Can I just clarify...

MOD: Then we should wrap up because we made a promise to everybody that we end at 2:00

(BINTA/ADELE?): On the one hand we say that it's up to a lot of the countries in Latin America to deal with their own problems and we also acknowledge that the top down approach of the United States in the past hasn't been effective. The reaction I think in Latin America over the course of the last 10 years especially has been increasing independence and not necessarily filling in all cases – and I don't' want out lump all of Latin America together because obviously each country is different – but there's a general sense I think that they don't necessarily need to work with the United States. So how does the US – I know what the areas are where we can and should work. But how do we overcome this independence so that we CAN partner and cooperate together?

MOD: Thirty seconds, Arturo.

ARTURO: Strikes me that in fact that's exactly what we're doing and that we're trying to engage, and let's remember that it's not just the public sector, it's across the board. It's through the private sector, through the NGOs and through others. There's a very rich dialogue that's going on. We have a very strong presence – the issue is do we do things differently than we did in the past because of the changing realities today? Yes, because that's what we need to do it to engage in a different way. And let me just do another shout out for the issue of women. There's just simply no question – study after study shows that unless women are empowered across the world, the levels of poverty and equality and other things are not going to work, success in terms of competitiveness and all those sorts of things are not going to be addressed. And I was proud when I was in the Bureau that we DID address these social issues. In fact, (Paola Uribe?) who was a senior advisor in the Bureau Western Hemisphere Affairs and who was in charge of all the women's issues and worked very closely with Secretary Clinton and ([inaudible] Rivera) and others like that to advance this agenda knows much more about this and she really did a phenomenal job at the time to push these issues. So it HAS to be at the front of the agenda. And we still did not talk about China but.....

MOD: Please join me in thanking our panel.

[applause]

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